Decentralized Platforms: Governance, Tokenomics, and ICO Design

Jingxing (Rowena) Gan (), Gerry Tsoukalas () and Serguei Netessine ()
Additional contact information
Jingxing (Rowena) Gan: Cox School of Business, Southern Methodist University, Dallas, Texas 75205
Gerry Tsoukalas: Questrom School of Business, Boston University, Boston, Massachusetts 02215; IMD, CH-1001 Lausanne Switzerland
Serguei Netessine: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Management Science, 2023, vol. 69, issue 11, 6667-6683

Abstract: Traditional two-sided platforms (e.g., Amazon, Uber) rely primarily on commission contracts to generate revenues and fuel growth, whereas their decentralized counterparts (e.g., Uniswap, Filecoin) often forego these in favor of token retention. What economics underpin this choice? We show that with properly designed initial coin offerings (ICOs), both mechanisms can independently alleviate market failures at the initial fundraising stage and incentivize long-term platform building. However, they achieve this in different ways. Although commission contracts often lead to higher profits for founders, token retention leads to higher service levels, benefiting the users and service providers. In essence, token retention surrenders a fraction of earnings to better align with the tenets of decentralized governance. Combining both mechanisms can add value, but only in relatively limited cases. These findings offer guidance and a possible rationale for why platforms may want to favor one mechanism over the other or use both.

Keywords: blockchain platforms; decentralized governance; initial coin offerings; moral hazard; tokenomics; two-sided platforms (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2021.02076 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:11:p:6667-6683

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().